Does any country actually trade on WTO rules alone?

Many Brexiteers have claimed that one of the reasons we shouldn’t fear a no-deal departure is that lots of other countries in the world already trade with each other on basic World Trade Organisation (WTO) rules – the framework the UK would drop into if we left the EU on 29 March with no withdrawal agreement and no transition period.

But is this claim actually true?

Anand Menon, the director of the UK in a Changing Europe think tank, pointed out in an article for The Independent last month that it’s actually misleading.

First it’s important to understand what the WTO is and what its rules are.

There are 164 WTO member states around the world. The central rule of the club is that no country can impose tariffs on another country’s imports that are higher than those imposed on imports from any other country – unless it has established a broad free trade agreement with that country. So if country X gives country Y a reduced tariff, that same favour must be granted to all other WTO members.

This is the “most favoured nation” principle. Its purpose is to prevent ad hoc discrimination on tariffs by countries and the risk of tit-for-tat trade battles.

But that does not mean that, in the absence of a free trade agreement, trade between two states can be assumed to be governed only by WTO rules.

Take the EU’s trade with the US.

The EU does not have a comprehensive free trade agreement with the United States, yet the bloc does have over 100 sector-level agreements on various aspects of EU-US trade that go well beyond WTO rules, ranging from aviation to insurance.

“No member [of the WTO] trades on ‘WTO terms’ alone,” says Mr Menon.

“All 164 of them have negotiated better access to at least one market through some kind of bilateral agreement in addition to their WTO relationship.”

So if the UK suddenly left the EU its trade with the US, at least initially, would still be disrupted because we would lose the coverage over those 100 sector agreements too.

The point is that WTO rules are not some kind of tried and tested landing place for a country crashing out of a trade bloc.

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